SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
---------
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the period ended March 31, 2000
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ------ to
Commission File Number: 0-9261
KESTREL ENERGY, INC.
--------------------
(Exact name of registrant as specified in its charter)
Colorado 84-0772451
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
999 18th Street, Suite 2490, Denver, CO 80202
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(303) 295-0344
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
[X] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
The number of shares outstanding of
common stock, as of March 31, 2000: 7,306,000
KESTREL ENERGY, INC.
AND SUBSIDIARIES
INDEX TO UNAUDITED FINANCIAL STATEMENTS
PART I. FINANCIAL INFORMATION Page
----
Item 1. Consolidated Balance Sheets as of March 31, 2000 and
June 30, 1999 3
Consolidated Statements of Operations for the Three
and Nine months Ended March 31, 2000 and 1999 4
Consolidated Statements of Cash Flows for the Nine
Months Ended March 31, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Change in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports of Form 8-K 9
Signatures 10
PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. Financial Statements
- ------------------------------
KESTREL ENERGY, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS as of March 31, 2000 and June 30, 1999
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Unaudited)
March 31, June 30,
ASSETS 2000 1999
- ---------------------------------------- ----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 294,994 $ 394,980
Accounts receivable 145,255 110,880
Due from related party - 60,006
Other assets 81,757 87,278
----------- -----------
Total current assets 522,006 653,144
----------- -----------
PROPERTY AND EQUIPMENT, NET AT COST:
Oil and gas properties, successful
efforts method of accounting:
Unproved 936,981 761,101
Proved 10,121,868 5,465,748
Furniture and equipment 155,498 139,516
----------- -----------
11,214,347 6,366,365
Accumulated depreciation and depletion (2,984,756) (2,960,275)
----------- -----------
Net property and equipment 8,229,591 3,406,090
----------- -----------
$ 8,751,597 $ 4,059,234
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ----------------------------------------
CURRENT LIABILITIES:
Accounts payable:
Trade $ 94,954 $ 47,752
Related party 31,492 20,172
Property acquisition costs 214,829 -
Costs advanced from related party 151,270 -
Accrued liabilities 29,434 25,013
Current portion of lease obligation 6,175 -
----------- -----------
Total current liabilities 528,154 92,937
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred Stock, $1 par value;
1,000,000 shares authorized,
none issued - -
Common Stock, no par value;
20,000,000 shares authorized,
7,306,000 and 4,456,000 issued and
outstanding at March 31, 2000 and
June 30, 1999, respectively 17,993,083 13,148,724
Accumulated deficit (9,769,640) (9,182,427)
----------- -----------
Total stockholders' equity 8,223,443 3,966,297
----------- -----------
$ 8,751,597 $ 4,059,234
=========== ===========
</TABLE>
KESTREL ENERGY, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED
March 31, 2000 and 1999
- -------------------------------------------------------------------------
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
March 31, March 31,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUE:
Oil and gas sales $ 234,438 $ 158,404 $ 774,366 $ 533,094
Interest 9,217 11,592 43,561 73,315
Gain (loss) on sale
of property &
equipment 193,254 (788) 193,254 (788)
Other income (loss) (4,238) 12,967 38,766 51,466
---------- ---------- ---------- ----------
TOTAL REVENUES 432,671 182,175 1,049,947 657,087
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Production and
operating
expenses 96,944 148,064 365,588 328,300
Exploration
expenses 145,688 46,002 338,669 377,298
Dry holes, abandoned
and impaired
properties - 12,374 25,125 205,772
Depreciation and
depletion 31,196 30,818 96,173 115,795
General and
administrative 313,229 220,942 811,605 544,270
---------- ---------- ---------- ----------
TOTAL COSTS AND
EXPENSES 587,057 458,200 1,637,160 1,571,435
---------- ---------- ---------- ----------
NET LOSS $ (154,386) $(276,025) $(587,213) $(914,348)
---------- ---------- ---------- ----------
BASIC AND DILUTED
LOSS PER COMMON
SHARE $ (0.02) $ (0.06) $ (0.09) $ (0.20)
========== ========== ========== ==========
WEIGHTED AVERAGE
COMMON SHARES
OUTSTANDING 7,295,500 4,456,000 6,518,545 4,448,701
========== ========== ========== ==========
</TABLE>
KESTREL ENERGY, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED
March 31, 2000 and 1999
(Unaudited)
- -------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, June 30,
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (587,213) $ (914,348)
Adjustments to reconcile net loss
to net cash provided (used) by
operating activities
Depreciation and depletion 96,078 115,795
Dry holes, abandoned and impaired
properties 24,257 199,263
Non-cash compensation expense 2,319 -
(Gain) loss on sale of property &
equipment, net (193,254) 788
(Increase) decrease in accounts
receivable (34,375) 4,492
(Increase) decrease in related party
receivable 60,006 218,118
(Increase) in other current assets 5,521 (20,251)
Increase (decrease) in accounts
payable, trade 47,202 (73,398)
Increase (decrease) in accrued
liabilities 4,421 11,688
Increase in accounts payable to
related party 11,320 -
----------- -----------
Net cash (used) by operating activities (563,718) (457,853)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures/acquisition
of properties (4,766,403) (1,417,281)
Proceeds from sale of property &
equipment 243,000 1,000
Redemption of short-term
investments, net - 1,981,654
----------- -----------
Net cash provided (used) by
investing activities (4,523,403) 565,373
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common
stock net of offering proceeds 4,842,040 -
Costs advanced from related party 151,270
Payments on lease obligations (6,175) -
----------- -----------
Net cash provided by financing
activities 4,987,135 -
----------- -----------
Net increase (decrease) in cash and
cash equivalents (99,986) 107,520
Cash and cash equivalents at the
beginning of the period 394,980 372,194
----------- -----------
Cash and cash equivalents at the
end of the period $ 294,994 $479,714
=========== ===========
SELECTED NON CASH ACTIVITIES:
Total property acquisitions $ 4,993,582 $ 1,426,656
Common stock issued to acquire
property - (9,375)
Lease obligation used to acquire
property (12,350) -
Accounts payable used to acquire
property (214,829) -
----------- -----------
Net cash used to acquire property $ 4,766,403 $ 1,417,281
=========== ===========
Cash paid for interest $ 494 $ -
----------- -----------
</TABLE>
KESTREL ENERGY, INC.
- --------------------
NOTES TO FINANCIAL STATEMENTS
- -----------------------------
1. Management Opinion
These condensed financial statements should be read in conjunction
with the audited financial statements and notes thereto included in
the Company's Annual Report on Form 10-K for the fiscal year ended
June 30, 1999.
In the opinion of management, the accompanying interim unaudited
financial statements contain all the adjustments necessary to present
fairly the financial position of the Company as of March 31, 2000,
the results of operations for the periods shown in the statements of
operations, and the cash flows for the periods shown in the
statements of cash flows. All adjustments made are of a normal
recurring nature.
2. On May 5, 2000, the Company sold six international permits for
petroleum drilling in Western Australia and New Guinea to Victoria
Petroleum USA, Inc. ("VP/USA"), a Colorado corporation and wholly
owned subsidiary of Victoria Petroleum N.L. ("VP"), an Australian
corporation and an affiliate of the Company, in exchange for
8,250,000 shares of VP Common Stock. On May 5, 2000, the Company,
Kestrel Energy California, Inc.("KEC"), a wholly owned subsidiary of
the Company, VP, and VP/USA entered into an Agreement and Plan of
Merger (the "Merger Agreement"). Pursuant to the Merger Agreement,
on May 12, 2000, the Company, as sole shareholder of KEC, acquired
66,750,000 shares of VP common stock and VP/USA acquired all of the
issued and outstanding shares of KEC through a merger of KEC with and
into VP/USA, with KEC as the surviving corporation.
The Boards of Directors of the Company, KEC, VP, and VP/USA have
common members who serve on each Board. In order to avoid conflicts
of interests between the parties, a committee of independent
directors from each corporation negotiated the terms of the sale of
the international permits to VP and the Merger Agreement with KEC, VP
and VP/USA with the assistance of independent consultants.
3. In December 1999 the Company completed a private offering of 950,000
shares of its common stock at $2.70 per share. Net proceeds to the
Company were $2,532,176 after offering and related expenses of
$32,824. The private placement of shares provided the Company with
resources to drill the Greens Canyon 29-2 test well on the Greens
Canyon Prospect. In August, 1999 the Company completed a private
offering of 1,880,000 shares of its common stock at $1.25 per share.
Net proceeds to the Company were $2,299,038 after offering and
related expenses of $50,962. The private placement of shares
provided the Company with resources to drill and complete the UPRC 27-
3 test well on the Greens Canyon Prospect. The shares sold in the
offerings were sold to offshore purchasers in accordance with SEC
Regulation S but the Company has since registered the shares with the
SEC on Form S-3 for resale in the United States.
4. On January 18, 2000, the Board of Directors of the Company declared a
dividend distribution of 10 Warrants for every 100 shares of
outstanding common stock, no par value per share, of the Company held
of record by the shareholders at the close of business on February 4,
2000 (the "Record Date"). The Warrant Certificates were only issued
in increments of 10 Warrants based upon a rounding of individual
shareholders' record holdings. No Warrants were issued to
shareholders holding less than 100 shares as of the Record Date.
Each Warrant entitles the registered holder to purchase from the
Company one share of Common Stock at a price of $3.125 per share,
subject to adjustment. The Warrants will expire on February 4, 2001,
unless earlier redeemed by the Company.
5. On February 21, 2000, the Company entered into a $2,000,000 Line of
Credit agreement with Norwest Banks Colorado, N.A., which provides
the Company a current borrowing base of $600,000 with interest at
Norwest's prime rate plus 2.5%. The note is due October 31, 2001, and
is secured by Deeds of Trust on various oil and gas producing
properties held by the Company. No amounts were outstanding at March
31, 2000.
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
- -------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
At March 31, 2000, the Company had a working capital deficit of $6,148.
This compares to the Company's working capital of $560,207 as of June 30,
1999. The decrease in working capital of $566,355 was a result of the
Company's operating losses and amounts expended on drilling and completion
of the UPRC 27-3 and UPRC 29-2 wells in Wyoming.
Net cash used by operating activities was $563,718 for the nine months
ended March 31, 2000, an increase of $105,865 over cash used from
operations of $457,853 for the same period in 1999. Operating cash flows
decreased during the period as a result of the Company's net loss for the
nine month period. The Company's accounts receivable increased $34,375,
or 31%, to $145,255 during the period as compared to a decrease of $4,492,
or 3%, for the same period in 1999. The increase in receivables is
primarily due to higher oil and gas prices received during the period.
Amounts due from related party decreased $60,006, or 100% to zero during
the nine month period. The decrease is a result of joint interest billing
payments made by Victoria Petroleum USA, Inc. The Company's trade
accounts payable increased $47,202, or 99%, to $94,954 during the period
versus a decrease of $73,398, or 52% from a year ago. Accounts payable
relating to property acquisition costs were $214,829 as of March 31, 2000.
All of these costs relate to the development of the Greens Canyon Prospect
in Wyoming. The prospect costs are being capitalized in accordance with
the Company's historical accounting practices and therefore are reflected
as an investing activity on the Company's cash flow statement.
Net cash used by investing activities was $4,523,402 for the nine months
ended March 31, 2000, versus cash provided of $565,373 for the same period
in 1999. The decrease in cash flow from investing activities was
attributable to capital expenditures for property and equipment of
$4,766,402 offset by cash received on the sale of property of $243,000.
Capital expenditures for the nine months ended March 31, 2000 include
$2,263,453 and $1,677,163 to drill and prepare for completion the UPRC 27-
3 and Greens Canyon 29-2 test wells in Wyoming, respectively. An
additional $438,900 was incurred on a 3D seismic study of the Greens
Canyon Prospect which will provide the Company with important information
concerning future developmental drilling on that Prospect. The Company
also purchased acreage in Fire Hole Canyon, a new Wyoming prospect for
approximately $200,000. Approximately $125,338 was expended to build a
pipeline for the Greens Canyon wells to transport gas to market. An
additional $61,548 was expended during the period for office equipment,
software, and capital additions on various producing properties. During
the period the Company sold its working interests in 16 wells located on
the Porcupine leasehold in Wyoming for $243,000. Gain on the sale
amounted to $193,254 as reflected in the Company's revenues for the nine
month period.
Cash provided by financing activities was $4,987,135 for the current
period. The increase in cash from financing activities was a result of
the Company's private placement of 1,880,000 and 950,000 shares of its
common stock at $1.25 and $2.70 per share respectively, for gross proceeds
of $4,915,000 before offering and related expenses of $87,960.
Additionally, the Company received $15,000 from the exercise of stock
options during the period by employees of the Company. The Company also
leased geological software in the amount of $12,350 which requires the
Company to make eight quarterly payments of $1,667, including interest,
beginning July 1999 and maturing in July, 2001. The Company made four
payments on the lease obligation during the period.
RESULTS OF OPERATIONS
---------------------
Third Quarter Results
- ---------------------
The Company reported a loss of $154,386, or 2 cents per share, for the
three month period ended March 31, 2000 and a loss of $587,213 or 9 cents
per share for the nine month period ended March 31, 2000. This compares
with a loss of $276,025, or 6 cents per share and $914,348 or 20 cents per
share for the three month and nine month periods ended March 31, 2000,
respectively. The decrease in net loss versus a year ago is attributable
to significantly higher oil and gas revenues and the gain from the sale of
property, despite higher overall expenses.
The Company's revenues for the three months ended March 31, 2000 were
$432,671 compared to $182,175 during the same period of 1999, an increase
of $250,496, or 138%. Revenues from oil and gas sales were $234,438 for
the period ended March 31, 2000, an increase of $76,034, or 48%, as
compared to $158,404 for the same period in 1999. The increase in oil and
gas revenues was the result of significantly higher oil and gas prices
versus the year ago period. Interest income decreased $2,375, or 20%, to
$9,217 from $11,592 a year ago. The decrease in interest income is
attributable to the reduction of short-term investments, as these
investments have been liquidated to meet cash flow requirements. As
discussed under Liquidity and Capital Resources, the Company sold its
working interests in 16 wells located on the Porcupine leasehold in
Wyoming for $243,000, which resulted in a gain of $193,254 for the three
and nine month periods. Other income decreased $17,205 to a loss of
$4,238 during the period versus income of $12,967 a year ago. The
decrease in other income reflects the Company's reclassification of
refunds received on expenses previously recorded as other income.
The Company's total revenues for the nine month period ended March 31,
2000 were $1,049,947 as compared to $657,087 during the same period in
1999, an increase of $392,860, or 60%, as a result of higher oil and gas
revenues and the gain on sale of property as described above. Revenue
from oil and gas sales was $774,366 for the nine months ended March 31,
2000, an increase of $241,272 or 45%, as compared to sales of $533,094 a
year ago. The increase in oil and gas sales was attributable to
significantly higher oil and gas prices versus the year ago period.
Interest income declined to $43,561 for the nine months ended March 31,
2000 versus $73,315 a year ago. The decrease of $29,754, or 41%, is
attributable to the reduction of short-term investments, as investments
have been liquidated to meet cash flow requirements. Other income
decreased $12,700, or 25%, to $38,766 for the nine months ended March 31,
2000 as compared to $51,466 a year ago.
The Company's total expenses for the third quarter increased $128,857, or
28%, to $587,057 as compared to $458,200 a year ago. The increase was a
result of higher exploration costs and higher general and administrative
costs during the period as described more fully below.
Total expenses for the nine months ended March 31, 2000 increased $65,725,
or 4%, to $1,637,160 versus $1,571,435 a year ago. The increase in
overall expenses was attributable to higher general and administrative
expenses as a result of the Company's higher activity level in connection
with the Greens Canyon development project.
Production and operating expenses for the three month period decreased
$51,120, or 35%, to $96,944 versus $148,064 for the same period a year
ago. The decrease is a result of lower lease operating expenses on the
Porcupine wells sold in January and lower work over expenses versus a year
ago.
For the nine months ended March 31, 2000, production and operating
expenses rose $37,288, or 11%, to $365,288 as compared to $328,300 a year
ago. Lease operating and workover costs increased on the Lake Bouef SWDS,
Pierce and Kaye Units. Production taxes also increased from year ago
levels reflecting higher oil and gas prices received by the Company.
Exploration expenses for the quarter ended March 31, 2000 increased
$99,686, or 217%, to $145,688 from $46,002 a year ago. The increase is a
result of higher engineering, geophysical, and delay rental costs on the
Greens Canyon Prospect and San Joaquin Prospects.
For the nine months ended March 31, 2000, exploration expenses decreased
$38,629, or 10% to $338,669 versus $377,298 a year ago. The decrease in
exploration expenses reflects the Company's emphasis on the Greens Canyon
development and lower geophysical costs on the international prospects
versus a year ago.
Dry holes, abandoned and impaired properties expenses for the third
quarter decreased $12,374 to zero, or 100% from a year ago. The decrease
from year ago levels was attributable to no impairment expenses in the
third quarter.
Dry holes, abandoned and impaired properties expense declined $180,647, or
88%, to $25,125 for the nine months ended March 31, 2000 versus $205,772 a
year ago. The decrease in dry hole expenses during the nine month period
is attributable to the reduction in unsuccessful drilling activity by the
Company both domestically and internationally.
General and administrative costs for the three months ended March 31, 2000
increased $92,287, or 42%, to $313,229 as compared to $220,942 for the
same period a year ago. The increase in expenses is attributable to
higher salaries for exploration associated with the Greens Canyon Project,
higher accounting, legal, and shareholder communications costs.
The Company's general and administrative expenses for the nine months
ended March 31, 2000 increased $267,335, or 49%, to $811,605 as compared
to $544,270 a year ago. The increase for the nine month period reflects
the increase in activity at the Company as a result of the Greens Canyon
Project. The Company anticipates that general and administrative expenses
will continue at this level for the foreseeable future.
FORWARD LOOKING STATEMENTS
- --------------------------
This report includes one or more statements, which state or otherwise
indicate the Company's present belief or expectation concerning future
events. Such statements are forward looking statements on which investors
should not rely because they are subject to a wide variety of
contingencies and based on a number of assumptions, which may not prove to
be true. In particular, the Company's future success is highly dependent
on the success of its exploratory drilling efforts, which cannot be safely
predicted. In addition, the Company is highly dependent upon prevailing
prices for petroleum products, its ability to attract and retain qualified
personnel, as well as other risk factors affecting business generally,
such as overall economic conditions, changes in tax and other laws and the
effect of actions taken by competitors and regulatory authorities.
INFLATION AND CHANGING PRICES
- -----------------------------
Inflation has not had a significant effect on the Company's results of
operations. However, the constantly fluctuating price of crude oil and
natural gas materially affects the Company's cash flow, either positively
or negatively.
PART II OTHER INFORMATION
-----------------------------
ITEM 1. LEGAL PROCEEDINGS
Not applicable
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On January 18, 2000, the Board of Directors of the Company
declared a dividend distribution of 10 Warrants for every 100
shares of outstanding common stock, no par value per share, of
the Company held of record by the shareholders at the close of
business on February 4, 2000 (the "Record Date"). The Warrant
Certificates were only issued in increments of 10 Warrants based
upon a rounding of individual shareholders' record holdings. No
Warrants were issued to shareholders holding less than 100
shares as of the Record Date. Each Warrant entitles the
registered holder to purchase from the Company one share of
Common Stock at a price of $3.125 per share, subject to
adjustment. The Warrants will expire on February 4, 2001,
unless earlier redeemed by the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Line of Credit between the Company and Norwest
Bank, Colorado, National Association dated February
21, 2000
10.2 Articles of Merger for Kestrel Energy
California, Inc. and Victoria Petroleum USA, Inc.
27 Financial Data Schedule
(b) Reports on Form 8-K
On January 21, 2000, the Company filed a Form 8-K dated
January 18, 2000 under Item 5 with the Securities and Exchange
Commission to report the declaration of a warrant dividend.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
KESTREL ENERGY, INC.
--------------------
(Registrant)
Date: May 15, 2000 /s/TIMOTHY L. HOOPS
------------ -------------------
Timothy L. Hoops
President, Principal
Executive Officer,
and Director
Date: May 15, 2000 /s/MARK A. BOATRIGHT
------------ --------------------
Mark A. Boatright
Vice President - Finance,
Principal Financial and Accounting
Officer, and Director
EXHIBIT INDEX
Exhibit No. Description
10.1 Line of Credit between the Company and Norwest Bank,
Colorado, National Association dated February 21, 2000
10.2 Articles of Merger for Kestrel Energy California, Inc.
and Victoria Petroleum USA, Inc.
27 Financial Data Schedule
The foregoing exhibits have been filed herewith electronically.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> MAR-30-2000
<CASH> 295
<SECURITIES> 0
<RECEIVABLES> 145
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 522
<PP&E> 11,214
<DEPRECIATION> 2,984
<TOTAL-ASSETS> 8,752
<CURRENT-LIABILITIES> 528
<BONDS> 0
0
0
<COMMON> 17,993
<OTHER-SE> (9,769)
<TOTAL-LIABILITY-AND-EQUITY> 8,752
<SALES> 774
<TOTAL-REVENUES> 1,050
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,637
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (587)
<INCOME-TAX> 0
<INCOME-CONTINUING> (587)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (587)
<EPS-BASIC> (0.09)
<EPS-DILUTED> (0.09)
</TABLE>
February 21, 2000
Mr. Tim Hoops
Kestrel Energy, Inc.
Victoria Exploration, Inc.
999 18th St.
Denver, CC, 80202
Dear Mr. Hoops,
Norwest Bank Colorado, National Association, is pleased to commit to make
a working capital line of credit available to Kestrel Energy, Inc. and
Victoria Exploration, Inc. The borrowing facility will be subject to the
following:
I. TERMS
- --------
BORROWERS
- ---------
Kestrel Energy, Inc. a Colorado Corporation
Victoria Exploration, Inc. a Colorado Corporation
GUARANTORS
- ----------
None
LENDER
- ------
Norwest Bank Colorado, National Association ("Norwest").
COMMITMENT AMOUNT
- -----------------
Not to exceed the lesser of the Borrowing Base Amount or $2,000,000,
represented by a promissory note dated as of February 21, 2000 ("Note").
MATURITY DATE
- -------------
The maturity date is October 31, 2001. Letters of Credit issued under
this facility must fully expire on or before October 31, 2001, otherwise,
the Letters of Credit must be fully secured by cash deposits.
PAYMENTS
- --------
Interest is due and payable monthly on the last calendar day of each
month. Principal is due at maturity.
RATE
- ----
Interest shall accrue at an annual rate equal to the fluctuating prime
rate established from time to time by Norwest, plus 2.50%.
FEES
- ----
Loan origination fee of $5,400 due at closing. Each subsequent increase
to the Borrowing Base Amount will carry a 1.0% commitment fee on the
incremental amount.
Engineering fee of $1,500 due at closing.
Letters of Credit fee of 2% per annum, minimum $500, for each Letter of
Credit issued and/or extended. Such fee shall be paid at the time of
issuance or extension.
SECURITY
- --------
Secured by first priority Mortgage, Deed of Trust, Assignment of
Production, Security Agreement and Financing Statement on selected oil and
gas properties owned by Borrowers. Reasonable legal fees, recording and
filing fees (including any mortgage tax) will be reimbursed by Borrowers.
STRUCTURE
- ---------
Funds will be available on a revolving basis through October 31, 2001 (the
"revolving period"). During the revolving period, the Borrowers may
borrow, repay and reborrow funds as long as the aggregate outstanding
amount (including Letters of Credit) does not exceed the lesser of the
Commitment Amount or the Borrowing Base Amount.
BORROWING BASE AMOUNT
- ---------------------
Borrowing Base Amount means the amount of available credit hereunder at
any time prior to the Maturity Date, as determined by Lender in the
exercise of its sole and absolute discretion based upon, among other
things, a determination by the Lender of the value of the oil and gas
reserves and/or other assets of Borrowers.
Effective the date hereof, the Borrowing Base Amount is $600,000.
Norwest will perform semi-annual reviews of the Borrowing Base Amount in
April and October of each year, commencing April 2000. In addition,
Norwest, at its sole discretion, may redetermine the Borrowing Base Amount
one additional time per year besides the semi-annual Borrowing Base
Redeterminations. If any redetermination results in the Borrowing Base
Amount being changed, the Borrowers shall be promptly notified; if any
redetermination results in no change being made in the Borrowing Base
Amount, no notification shall be made. Should Norwest determine that the
Borrowing Base Amount is less than the amount outstanding, the Borrowers
shall, within 30 days after receipt of written notice from Norwest: (1)
make a principal reduction to the amount outstanding sufficient to repay
the excess or (2) amortize the excess over a six-month period with six
equal payments, payable the last day of each calendar month, each said
amount to be in addition to monthly principal and interest payments that
might otherwise be due, or (3) provide Norwest, within 20 business days of
Norwest's request and at Borrowers' expense, a valid perfected first lien,
on terms and conditions satisfactory to Norwest, on sufficient proved
developed producing oil and gas properties, so as to secure the remainder
of any debt outstanding under this Agreement.
Borrowers may request, in writing, an increase in the Borrowing Base
Amount, such request is to be accompanied by a description and evaluation
of any additional collateral to be provided to Norwest. Norwest may
evaluate such request for an increase in the Borrowing Base Amount in its
sole and absolute discretion, and in conjunction with such evaluation may
conduct a full credit analysis of Borrowers and the existing or any
additional collateral value.
PURPOSE
- -------
General working capital purposes in support of Borrowers' operations,
including acquisition of oil and gas properties and related assets.
Additionally, the line may also be used for the issuance of Letters of
Credit. In no event will the line be used for the purpose of purchasing or
carrying "margin stock" in violation of Regulations G, U, or X of the
Board of Governors of the Federal Reserve System.
II. CONDITIONS PRECEDENT
- ------------------------
The provisions of this letter will serve as the terms of the borrowing
arrangements and will be hereafter referred to as the Agreement. Prior to
any funds being made available, the Borrowers will execute and deliver to
Norwest, in form and substance satisfactory to Norwest, (a) a corporate
borrowing authorization, (b) a promissory note, (c) this Agreement, and
(d) any collateral security documents ("Security Documents") required by
Norwest.
III. LOAN COVENANTS
- -------------------
Unless Norwest shall otherwise consent in writing, and so long as any debt
remains outstanding or the commitment still available, the Borrowers will
comply with the following:
1. Borrowers will:
a. submit, within 60 days of each quarter end, a monthly production
and lease operating report, reflecting total production volumes,
revenues, lease operating expenses, production taxes, and
product prices of producing oil and gas properties owned by the
Borrowers and included in the determination of the Borrowing
Base Amount;
b. submit, within 60 days of each quarter end, Borrowers prepared
consolidated financial statements, in accordance with GAAP, in
form and substance acceptable to the Lender;
c. submit, within 60 days of each quarter end, a Certificate of
Compliance for the Loan Covenants;
d. submit, within 90 days of each fiscal year end, an independent
engineering reserve report covering Borrowers' Borrowing Base
oil and gas properties, prepared by an engineer acceptable to
Norwest, in form and substance acceptable to Norwest;
e. submit, within 90 days of each fiscal year end, consolidated
audited financial statements, in form and substance acceptable
to the Lender;
f. submit, within 90 days of each fiscal year end, a Certificate of
Compliance for the Loan Covenants;
g. maintain a Current Ratio of 1.25 or higher at all time; for
calculation purposes, Current Ratio is defined as current asset
plus unused availability under the Revolving Line of Credit
divided by current liabilities (excluding debt to Norwest);
h. maintain a consolidated Leverage Ratio (total liabilities / TNW)
of 1.0 or lower at all time;
i. keep the collateral free from any liens and encumbrances and
promptly pay any bills incurred for work performed on the
collateralized properties;
j. maintain insurance in amounts, form, and substance acceptable to
Lender;
k, provide other data and documentation which the Lender may
reasonably request;
2. Borrowers will not:
a. incur other debt of any kind, other than trade payables and debt
occurring out of the ordinary course of business, or pledge any
asset owned by Borrowers, without the prior written consent of
Lender;
b. incur, create, assume or suffer to exist any mortgage, deed of
trust, pledge, lien, security interest, or other charge or
encumbrance of any nature, on any oil its oil and gas
properties, excluding liens in favor of Norwest, and excluding
oil, gas, and mineral leases, permits, gas sales and
transportation contracts or similar agreements, entered into in
the ordinary course of business;
c. incur capital lease obligations greater than $100,000;
d. make loans or advances to any third party;
e. change the management structure of Borrowers;
f. change its business or cease doing business;
g. make any distributions or advances to any stockholder, entity,
or individual;
IV. EVENTS OF DEFAULT
- ---------------------
The occurrence of any of the following shall constitute an "Event of
Default" under this Agreement and the Note:
1. Borrowers shall fail to pay when due, any principal, interest, or
other amount payable under this Agreement, or any promissory notes
executed or guaranteed by the Borrowers in favor of Norwest, before
the expiration of 10 days after such payment is due.
2. Any representation or warranty made by Borrowers hereunder or in any
related collateral security or other documents entered into with
Norwest shall prove to be, at any time, incorrect in any significant
respect.
3. Borrowers shall fail to observe or perform any obligation, agreement,
or other provision contained herein or in any other contract or
instrument executed in connection herewith.
4. Any default or defined Event of Default under any security agreement,
deed of trust, promissory note, or other contract or instrument
executed by the Borrowers pursuant to, or as required by, this
Agreement.
5. Borrowers shall fail immediately to pay and discharge, any judgment
or any levy of attachment, execution, or other process against any of
Borrowers' assets, or such judgment shall not be satisfied, within 10
days after the entry thereof.
6. Borrowers shall: (a) become insolvent, or suffer or consent to or
apply for the appointment of a receiver, trustee, custodian or
liquidator for itself or any of its property, or generally fail to
pay its debts as they become due, or make a general assignment for
the benefit of creditors, or (b) file a voluntary petition in
bankruptcy, or seeking reorganization, in order to effect a plan or
other arrangement with creditors or any other relief under the
Bankruptcy Reform Act, Title 11 of the United States Code, as
recodified from time to time ("Bankruptcy Code"), or as now or
hereafter in effect, or any involuntary petition or proceeding
pursuant to said Bankruptcy Code or any other applicable state or
federal law relating to bankruptcy or reorganization or other relief
for debtors is filed or commenced against Borrowers; or (c) file any
answer admitting the jurisdiction of the court and the material
allegations of any such involuntary petition; or (d) be adjudicated
as bankrupt, under said Bankruptcy Code or any other state or federal
law relating to bankruptcy, reorganization, or other relief for
debtors.
7. Norwest, in good faith, considers Norwest's prospect of or right to
payment or performance under this Agreement or the Note to be
impaired.
V. REMEDIES
- -----------
If any Event of Default shall occur, any indebtedness of the Borrowers
under this Agreement, any other contract or instrument executed in
conjunction herewith or the Note, any term of the Note to the contrary
notwithstanding, shall at Norwest's option and without notice, become
immediately due and payable without presentment, demand, or protest or
notice of dishonor, all of which are hereby expressly waived by Borrowers.
In addition, the obligation, if any, of Norwest to permit further
borrowings hereunder shall immediately cease and terminate and Norwest
shall have all rights, powers and remedies available under this Agreement,
the Note or other contracts or instruments executed in connection
herewith, or accorded by law, including without limitation, the right to
resort to any or all of the collateral and to exercise any or all of its
rights, powers, or remedies at any time and from time to time after the
occurrence of any Event of Default.
All rights, powers, and remedies of Norwest in connection with this
Agreement, the Note or any other contract or instrument on which the
Borrowers may at any time be obligated to Norwest (or any holder thereof)
are cumulative and not exclusive and shall be in addition to any other
rights, powers, or remedies provided by law or equity, including without
limitation the right to set off any liability owing by Norwest to either
of the Borrowers (including sums deposited in any deposit account of
Borrowers with Norwest) against any liability of the Borrowers to Norwest.
VI. WAIVER
- ----------
No delay, failure, or discontinuance by Norwest, or any holder of the
Note, in exercising any right, power, or remedy under this Agreement, the
Note or any other contract or instrument on which the Borrowers may at any
time be obligated to Norwest (or any holder thereof) shall affect or
operate as a waiver of such right, power or remedy. Any waiver, permit,
consent, or approval of any kind by Norwest (or any holder of the Note),
or of any provisions or conditions of, or any breach or default under this
Agreement, the Note or any other contract or instrument on which the
Borrowers may at any time be obligated, must be in writing and shall be
effective only to the extent set forth in such writing.
VII. NOTICES
- ------------
All notices, requests, and demands given to or made upon the respective
parties must be in writing and shall be deemed to have been given or made:
(1) at the time of personal delivery thereof, (2) or two days after any of
the same are deposited in the U.S. Mail, first class and postage prepaid,
addressed as follow:
Borrowers: Kestrel Energy, Inc.
999 18th St.
Denver, CO 80202
Bank: Norwest Bank Colorado, N.A.
Energy and Minerals
1740 Broadway
Denver, CO 80274-8699
or other such address as any party may designate by written notice to all
other parties.
VIII. SUCCESSORS, ASSIGNMENTS
- -----------------------------
This Agreement shall be binding on and inure to the benefit of the heirs,
executors, administrators, legal representatives, successors, and assigns
of the parties, provided, however, that this Agreement may not be assigned
by the Borrowers without the prior written consent of Norwest. Norwest
reserves the right to sell, assign, transfer, negotiate, or grant
participations in all or any part of, or any interest in, Norwest's rights
and benefits under this Agreement, the Note or any contracts or
instruments relating thereto. In connection therewith, Norwest may
disclose all documents and information which Norwest now has or may
hereafter acquire relating to the loan or the Note, the Borrowers or its
business, or any collateral required hereunder.
IX. SEVERABILITY OF PROVISIONS
- ------------------------------
If any of the provisions of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity without invalidating the
remainder of such provision or any remaining provisions of this Agreement.
X. ARBITRATION
- --------------
1. AGREEMENT TO ARBITRATE: Subject to the provisions of the next
paragraph below, Norwest and Borrowers agree to submit to binding
arbitration any and all claims, disputes and controversies between or
among them, whether in tort, contract or otherwise (and their respective
employees, officers, directors, attorneys, and other agents) arising out
of or relating to in any way to the loan and related loan and security
documents which are the subject of this Agreement and its negotiation,
execution, collateralization, administration, repayment, modification,
extension, substitution, formation, inducement, collection, enforcement,
default or termination.
Nothing in the preceding paragraph, nor the exercise of any right to
arbitrate thereunder, shall limit the right of any party hereto (1) to
foreclose against any real or personal property collateral by the exercise
of the power of sale under a deed of trust, mortgage, or other security
agreement, or instrument, or applicable law; (2) to exercise self-help
remedies such as setoff or repossession; or (3) to obtain provisional or
ancillary remedies such as replevin, injunctive relief, attachment, or
appointment of a receiver from a court having jurisdiction, before, during
or after the pendency of any arbitration proceeding. The institution and
maintenance of any action for such judicial relief, or pursuit to
provisional or ancillary remedies, or exercise of self-help remedies shall
not constitute a waiver of the right or obligation of any party to submit
any claim or dispute to arbitration, including those claims or disputes
arising from exercise of any such judicial relief, or pursuit of
provisional or ancillary remedies, or exercise of self-help remedies.
2. SELECTION OF ARBITRATOR(S): If the amount in dispute is $500,000 or
more, arbitration hereunder shall be before a three-person panel of
neutral arbitrators, consisting of one person from each of the following
categories: (1) an attorney who has practiced in the area of commercial
law in the State of Colorado for at least eight (8) years or a retired
judge at the District court or appellate court level from the State of
Colorado; (2) a person with at least eight (8) years experience in
commercial lending; and (3) a person with at least eight (8) years
experience in the oil and gas industry. The parties to the dispute or
their representatives shall obtain from the American Arbitration
Association ("AAA") a list of persons meeting the criteria outlined above
and the parties shall select the person in the manner established by the
AAA.
If the amount in dispute is less than $500,000, the arbitration shall be
conducted before one arbitrator who shall be an attorney who has practiced
in the area of commercial law for at least eight (8) years or a retired
judge at the District Court or appellate court level. The parties to the
dispute or their representatives shall obtain from AAA a list of persons
meeting the criteria outlined above and the parties shall select the
person in the manner established by the AAA.
3. GOVERNING LAWS AND RULES: Such arbitration shall proceed in the
State of Colorado in the City and County of Denver, shall be governed by
Colorado law, including all applicable statutes of limitation, and shall
be conducted in accordance with the Commercial Arbitration Rules of the
American Arbitration Association. Judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction.
4. DISCOVERY: In any arbitration hereunder: (1) the arbitrator(s) shall
decide (by documents only or with a hearing, at the arbitrator's
discretion) any pre-hearing motions which are substantially similar to
prehearing motions to dismiss for failure to state a claim or motions for
summary adjudication; (2) discovery shall be permitted, but shall be
limited as provided in Rule 26.1(c) of the Colorado Rules of Civil
Procedure, and shall be subject to the scheduling by the arbitrator(s),
and any discovery disputes shall be subject to final determination by the
arbitrator(s); and (3) the arbitrator(s) shall award costs and expenses of
the arbitration proceeding in accordance with the provisions of this
Agreement, the Note and/or other loan documents.
XI. COLORADO LAW APPLICABLE
- ---------------------------
This Agreement, the Note, and any contracts or instruments relating
thereto, shall be governed by and construed in accordance with the laws of
the State of Colorado, except to the extent that Norwest has greater
rights or remedies under federal law or the law of any jurisdiction in
which the collateral properties are located, in which case such choice of
Colorado law shall not be deemed to deprive Norwest of such rights and
remedies as may be available under such law.
This Agreement, the Note and any contracts or instruments relating
thereto, represent the entire agreement between the parties, and it is
expressly understood that all prior conversations or memoranda between the
parties regarding the terms of this Agreement shall be superseded by this
Agreement. Any amendments, approval, or waiver by Norwest of the terms of
this Agreement, the Note and any contracts or instruments relating
thereto. must be in writing or confirmed in writing, and shall be
effective only to the extent specifically set forth in such writing. This
Agreement, in conjunction with the Note and any contracts or instruments
relating thereto, is in lieu of a formal credit agreement and shall serve
to evidence the terms of the entire agreement between the parties.
XII. PAYMENT OF COSTS AND FEES
- ------------------------------
Borrowers will pay all out-of-pocket costs and expenses incurred by
Norwest in connection with (a) the preparation of this Agreement, the
Note, and the Security Documents, (b) any amendments or supplements
thereto, (c) the preparation, recordation, and filing of the Security
Documents (whether or not the transactions hereby contemplated shall be
consummated), and (d) the perfection and enforcement of the rights of
Norwest in connection with this Agreement and any of the Security
Documents or Note issued hereunder, including but not limited to, the fees
and out-of-pocket costs and expenses of Norwest's counsel.
Please acknowledge your acceptance of and agreement to the terms of this
agreement by dating and executing where indicated. This commitment will
expire, if not accepted and closed by March 31, 2000.
Sincerely,
NORWEST BANK COLORADO, NATIONAL ASSOCIATION
By:/s/Duc Duong
Duc Duong
Commercial Banking Officer
Energy & Minerals
AGREED TO AND ACCEPTED THIS 21st DAY OF FEBRUARY, 2000.
By:/s/Timothy L. Hoops
Tim Hoops, President
Kestrel Energy, Inc.
By:/s/Timothy L. Hoops
Tim Hoops, President
Victoria Exploration, Inc.
360 DAY PROMISSORY NOTE
- -------------------------------------------------------------------------
NORWEST BANK COLORADO, NATIONAL ASSOCIATION
- -------------------------------------------------------------------------
Bank's Address, City, State & Zip Code
1740 BROADWAY, DENVER, CO 80274
- -------------------------------------------------------------------------
FOR BANK USE ONLY Face Amount Rate (% per year)
- -------------------------------------------------------------------------
Customer No. Loan No.
0153053 9001 $2,000,000.00 **%
- -------------------------------------------------------------------------
Note Date Maturity Date
02/21/2000 10/31/2001
- -------------------------------------------------------------------------
Maker Home Phone Business Phone
KESTREL ENERGY, INC. and
VICTORIA EXPLORATION, INC.
- -------------------------------------------------------------------------
Street Address, City, State Zip Code
999 15TH STREET DENVER, CO 80202
- -------------------------------------------------------------------------
Security
BUSINESS ASSETS
- -------------------------------------------------------------------------
The captions in the boxes above, and the names, dates, amounts and other
information therein, are defined terms and are hereby incorporated in the
note provisions below.
Maker promises to pay to the order of Bank at Bank's address the Face
Amount with interest on the unpaid balance of the Face Amount from the
Note Date at the Rate indicated above (based upon a year of 360 days and
computed for the actual number of days elapsed). Principal and interest
shall be payable as follows:
Interest shall be payable monthly on the last day of each month
beginning 03/31/2000. The balance of principal plus accrued interest
shall be payable at maturity.
**The interest rate shall be at an annual rate two and one-half
percentage points above the Norwest Bank Colorado, National
Association Prime Rate, effective the same day of its change. Prime
Rate shall mean the interest rate charged by Norwest Bank Colorado,
National Association as announced or published by the Bank from time
to time as its Prime Rate, and may not be the lowest interest rate
charged by the Bank.
THIS NOTE EVIDENCES AN ARRANGEMENT PROVIDING FOR FUTURE ADVANCES THAT
IN AGGREGATE AMOUNT OUTSTANDING SHALL AT NO TIME EXCEED THE FACE
AMOUNT.
IN ADDITION, THIS NOTE EVIDENCES THE INDEBTEDNESS CREATED PURSUANT TO
AN ARRANGEMENT THAT MAY INCLUDE THE ISSUANCE OF LETTERS OF CREDIT
WHICH SHALL EXPIRE ON OR BEFORE 10/31/2001. ALL LETTERS OF CREDIT SO
ISSUED AND OUTSTANDING SHALL REDUCE THE AVAILABILITY HEREUNDER. ANY
AMOUNT DRAWN UNDER OUTSTANDING LETTER OF CREDIT MAY, AT THE BANK'S
OPTIONS, BE ADVANCED AGAINST THIS NOTE EVEN THOUGH THE NOTE MAY BE IN
DEFAULT OR BEYOND THE MATURITY DATE INCLUDING ANY RENEWALS,
EXTENSIONS, AND AMENDMENTS THEREOF AND SUBSTITUTIONS THEREFOR.
Overdue principal and (to the extent legally enforceable) overdue
interest, whether caused by acceleration of maturity or otherwise, shall
bear interest at a rate four percentage points above the rate in effect at
the time such principal or interest becomes due.
At the option of the holder of this note (the "holder") the unpaid
balance of this note plus accrued interest and all other obligations of
Maker to the holder, direct or indirect, absolute or contingent, now
existing or hereafter arising, shall become immediately due and payable
without notice or demand if (a) any payment required by this note is not
made when due, or (b) a default or event of default occurs under any loan
or security agreement or instrument executed as security for or in
connection with this note, or (c) the holder at any time in good faith
believes that the prospect of any payment required by this note is
impaired, whether or not such belief is caused by any act or failure to
act of any Maker or of any endorser, guarantor or accommodation party of
or on this note (hereafter collectively referred to as "any other
signer").
Maker and any other signer (1) waive presentment, notice of dishonor
and protest, (2) assent to any extension of time with respect to any
payment due under this note, to any substitution or release of collateral
and to the addition or release of any party, and (3) agree that Bank may
apply, as Bank elects, any payment received after default to any portion
of Maker's obligations hereunder. No waiver of any payment or other right
under this note shall operate as a waiver of any other payment or right.
Maker and any other signer shall pay all reasonable costs of collection,
including attorneys' fees, paid or incurred by the holder in enforcing
this note on default.
This note (a) is secured by the Security indicated above, if any, and
(b) shall be construed under and governed by the laws of Colorado. If
there is more than one Maker, all of the provisions of this note shall
apply to each and any of them.
THE ARBITRATION TERMS AND CONDITIONS ON THE BACK OF THIS PAGE ARE A PART
OF AND INCORPORATED INTO THIS NOTE.
-------------------------- KESTREL ENERGY, INC.
FOR BANK USE ONLY BY:/s/Timothy L. Hoops
-------------------------- TIM HOOPS, PRESIDENT
Multiple L.O.C. VICTORIA EXPLORATION, INC.
ELAINE ALBO BY:/s/Timothy L. Hoops
DUC DUONG TIM HOOPS, PRESIDENT
ARBITRATION
1. Agreement to Arbitrate: Subject to the provisions of the next
paragraph below, Bank and Maker agree to submit to binding arbitration any
and all claims, disputes and controversies between or among them, whether
in tort, contract or otherwise (and their respective employees, officers,
directors, attorneys, and other agents) arising out of or relating to in
any way to the loan and related loan documents which are the subject of
this note and its negotiation, execution, collateralization,
administration, repayment, modification, extension, substitution,
formation, inducement, collection, enforcement, default or termination.
Nothing in the preceding paragraph, nor the exercise of any right to
arbitrate thereunder, shall limit the right of any party hereto (1) to
foreclose against any real or personal property collateral by the exercise
of the power of sale under a deed of trust, mortgage, or other security
agreement, or instrument, or applicable law; (2) to exercise self-help
remedies such as setoff or repossession; or (3) to obtain provisional or
ancillary remedies such as replevin, injunctive relief, attachment, or
appointment of a receiver from a court having jurisdiction, before, during
or after the pendency of any arbitration proceeding. The institution and
maintenance of any action for such judicial relief, or pursuit to
provisional or ancillary remedies, or exercise of self-help remedies shall
not constitute a waiver of the right or obligation of any party to submit
any claim or dispute to arbitration, including those claims or disputes
arising from exercise of any such judicial relief, or pursuit of
provisional or ancillary remedies, or exercise of self-help remedies.
2. Selection of Arbitrator: If the amount in dispute is $500,000.00 or
more, arbitration hereunder shall be before a three-person panel of
neutral arbitrators, consisting of one person from each of the following
categories: (1) an attorney who has practiced in the area of commercial
law in the State of Colorado for at least eight (8) years or a retired
judge at the district court or appellate court level from the State of
Colorado; (2) a person with at least eight (8) years experience in
commercial lending; and (3) a person with at least eight (8) years
experience in the OIL & GAS EXPLORATION & PRODUCTION CO industry. The
parties to the dispute or their representatives shall obtain from AAA a
list of persons meeting the criteria outlined above and the parties shall
select the person in the manner established by the AAA.
If the amount in dispute is less than $500,000.00, the arbitration shall
be conducted before one arbitrator who shall be an attorney who has
practiced in the area of commercial law for at least eight (8) years or a
retired judge at the District Court or an appellate court level. The
parties to the dispute or their representatives shall obtain from AAA a
list of the persons meeting the criteria outlined above and the parties
shall select the person in the manner established by the AAA.
3. Governing Laws and Rules: Such arbitration shall proceed in the
State of Colorado in the city or county (if the Bank is not located in a
city) wherein the Bank is located, shall be governed by Colorado law,
including all applicable statutes of limitations, and shall be conducted
in accordance with the Commercial Arbitration Rules of the American
Arbitration Association ("AAA"). Judgement upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction.
4. Discovery: In any arbitration hereunder: (1) the arbitrator(s) shall
decide (by documents only or with a hearing, at the arbitrators'
discretion) any pre-hearing motions which are substantially similar to pre-
hearing motions to dismiss for failure to state a claim or motions for
summary adjudication: (2) discovery shall be permitted, but shall be
limited as provided in Rule 26.1(c) of the Colorado Rules of Civil
Procedure, and shall be subject to the scheduling by the arbitrator(s),
and any discovery disputes shall be subject to final determination by the
arbitrator(s); and (3) the arbitrator(s) shall award costs and expenses of
the arbitration proceeding in accordance with the provisions of the loan
agreement, promissory note and/or other loan documents.
ARTICLES OF MERGER
OF
VICTORIA PETROLEUM USA, INC.
INTO
KESTREL ENERGY CALIFORNIA, INC.
The undersigned corporations, pursuant to Section 7-111- 101 of the
Colorado Revised Statutes, hereby execute the following Articles of
Merger:
ARTICLE ONE
The names of the corporations proposing to merge and the names of the
states under the laws of which such corporations are organized are as
follows:
Name of Corporation State of Incorporation
------------------- ----------------------
Victoria Petroleum USA, Inc. Colorado
Kestrel Energy California, Inc. Colorado
ARTICLE TWO
The Agreement and Plan of Merger under which the corporations propose
to merge is attached hereto as Exhibit A.
ARTICLE THREE
The surviving corporation shall be Kestrel Energy California, Inc.
("KEC").
ARTICLE FOUR
The Articles of Incorporation of KEC shall be the Articles of
Incorporation of the surviving corporation.
ARTICLE FIVE
As to each corporation, the number of shares voted for the Agreement
and Plan of Merger was sufficient for approval.
ARTICLE SIX
The Effective Date of the merger is upon the filing of these Articles
of Merger with the Secretary of State of the State of Colorado.
IN WITNESS WHEREOF each of undersigned corporations has caused these
Articles of Merger to be executed in its name on this 5th day of May,
2000.
VICTORIA PETROLEUM USA, INC.
By/s/Robert J. Pett
Robert J. Pett, President
KESTREL ENERGY CALIFORNIA, INC.
By/s/ Timothy L. Hoops
Timothy L. Hoops, President
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
by and among
VICTORIA PETROLEUM N.L.,
VICTORIA PETROLEUM USA, INC.,
A WHOLLY OWNED SUBSIDIARY OF
VICTORIA INTERNATIONAL PETROLEUM N.L.,
AND
KESTREL ENERGY CALIFORNIA, INC.
A WHOLLY-OWNED SUBSIDIARY OF KESTREL ENERGY, INC.
dated
May 5, 2000
TABLE OF CONTENTS
-----------------
Page
----
SECTION 1. THE MERGER 1
1.1 ACTIONS TO BE TAKEN 1
1.2 CONVERSION OF KEC SECURITIES 2
1.3 EXCHANGE OF CERTIFICATES 3
1.4 LEGEND ON VP CERTIFICATES ISSUED IN CONVERSION OF
THE KEC COMMON STOCK 3
1.5 FILING OF ARTICLES OF MERGER 3
SECTION 2. REPRESENTATIONS AND WARRANTIES OF KESTREL AND KEC 3
2.1 CORPORATE ORGANIZATION AND GOOD STANDING 3
2.2 CAPITALIZATION 3
2.3 OBLIGATION TO ISSUE ADDITIONAL SECURITIES 4
2.4 AUTHORIZATION, EXECUTION AND DELIVERY 4
2.5 FINANCIAL INFORMATION 4
2.6 ABSENCE OF CERTAIN CHANGES 4
2.7 LITIGATION, ETC. 5
2.8 CONTRACTS 5
2.9 TITLE 5
2.10 TAX RETURNS 5
2.11 NO VIOLATION 5
2.12 BOOKS AND RECORDS 5
2.13 DISCLOSURE 6
2.14 BROKER'S OR FINDER'S FEES 6
2.15 VP COMMON STOCK RECEIVED IN EXCHANGE 6
2.16 DUE DILIGENCE 6
SECTION 3. REPRESENTATIONS AND WARRANTIES OF VP AND VP/USA 6
3.1 CORPORATE ORGANIZATION 6
3.2 CAPITALIZATION. 7
3.3 AUTHORIZATION, EXECUTION AND DELIVERY 7
3.4 FINANCIAL INFORMATION 7
3.5 ABSENCE OF CERTAIN CHANGES 7
3.6 LITIGATION 8
3.7 CONTRACTS 8
3.8 TITLE 8
3.9 TAX RETURNS 8
3.10 NO VIOLATION 8
3.11 BOOKS AND RECORDS 8
3.12 DISCLOSURE 8
3.13 BROKER'S OR FINDER'S FEES 9
3.14 CONTINUITY OF BUSINESS ENTERPRISE 9
3.15 OWNERSHIP OF KEC COMMON STOCK BY VP 9
3.16 KEC COMMON STOCK AND ASSETS 9
3.17 KEC OWNERSHIP INTERESTS FOLLOWING THE MERGER 9
3.18 INTENTION TO REACQUIRE VP COMMON STOCK BY VP 10
3.19 BUSINESS ACTIVITY OF VP 10
3.20 REPORTING REQUIREMENTS 10
SECTION 4. CONDUCT OF KEC PENDING THE EFFECTIVE DATE 10
4.1 REGULAR COURSE OF BUSINESS 10
4.2 RESTRICTED ACTIVITIES AND TRANSACTIONS 10
4.3 ADVICE OF CHANGES 11
4.4 ACCESS TO RECORDS AND PROPERTIES 11
4.5 GUARANTEE OF KEC'S OBLIGATIONS 11
SECTION 5. CONDUCT OF VP AND VP/USA PENDING THE EFFECTIVE
DATE 12
5.1 REGULAR COURSE OF BUSINESS 12
5.2 RESTRICTED ACTIVITIES AND TRANSACTIONS 12
5.3 ADVICE OF CHANGES 12
5.4 ACCESS TO RECORDS AND PROPERTIES 13
5.5 GUARANTEE OF VP/USA OBLIGATIONS 13
SECTION 6. MUTUAL COVENANTS 13
6.1 CONFIDENTIALITY 13
6.2 INTERCORPORATE DEBT 14
6.3 INVESTMENT COMPANY STATUS 14
6.4 EXPENSES 14
6.5 FAIR MARKET VALUE OF VP AND KEC 14
6.6 FURTHER ASSURANCES 14
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATION OF KEC 14
7.1 VP AND VP/USA REPRESENTATIONS AND WARRANTIES 14
7.2 VP AND VP/USA COVENANTS 15
7.3 GUARANTEE OF VP/USA OBLIGATIONS 15
7.4 OPINION OF VP'S COUNSEL 15
7.5 ACCOUNTANT'S LETTER 15
SECTION 8. CONDITIONS PRECEDENT TO OBLIGATION OF VP 16
8.1 KEC'S REPRESENTATIONS AND WARRANTIES 16
8.2 KEC'S COVENANTS 16
8.3 GUARANTEE OF KEC OBLIGATIONS 16
8.4 OPINION OF KEC'S COUNSEL 16
8.5 ACCOUNTANT'S LETTER 17
8.6 DUE DILIGENCE 17
SECTION 9. NOTICE OF EVENTS 17
SECTION 10. TERMINATION 17
10.1 CIRCUMSTANCES OF TERMINATION 17
10.2 EFFECT OF TERMINATION 18
SECTION 11. GENERAL PROVISIONS 18
11.1 FURTHER ASSURANCES 18
11.2 WAIVER 18
11.3 ENTIRE AGREEMENT 18
11.4 HEADINGS 18
11.5 GOVERNING LAW 18
11.6 ASSIGNMENT 19
11.7 COUNTERPARTS 19
SECTION 12. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS 19
SECTION 13. INDEMNITY AGREEMENTS OF VP AND KEC 19
SECTION 14. OTHER AGREEMENTS 19
14.1 PUBLIC DISCLOSURE 19
14.2 NOTICES 19
14.3 BINDING EFFECT 20
14.4 ENTIRE AGREEMENT 20
14.5 SCHEDULES AND EXHIBITS 21
14.6 APPLICABLE LAW AND JURISDICTION 21
14.7 NO BENEFIT TO THIRD PARTIES 21
14.8 COUNTERPARTS 21
14.9 ACKNOWLEDGEMENTS 21
Exhibits and Schedules
----------------------
Exhibit 1.1(b) Articles of Incorporation for KEC
Exhibit 1.1(c) Bylaws for KEC
Schedule 1.1(d) Officers of Surviving Corporation
Schedule 1.4 Restrictive Legends
Schedule 2.5 Liabilities of KEC
Schedule 2.6 Material Changes to KEC
Schedule 2.7 Litigation Matters of KEC
Schedule 2.8 Contracts of KEC
Schedule 2.9 Mortgages, Encumbrances or Liens on KEC Properties
Schedule 3.2 List of VP Options
Schedule 3.5 Material Changes to VP and VP/USA
Schedule 3.6 Litigation Matters Pending for VP and VP/USA
Schedule 3.7 Contracts of VP and VP/USA
Schedule 3.8 Mortgages, Encumbrances or Liens on VP Properties
AGREEMENT AND PLAN OF MERGER
----------------------------
AGREEMENT AND PLAN OF MERGER ("Agreement") dated as of May 5, 2000,
by and among Victoria Petroleum N.L. ("VP"), an Australian corporation,
Victoria Petroleum USA, Inc. ("VP/USA"), a Colorado corporation and wholly-
owned subsidiary of Victoria International Petroleum N.L. ("VIP"), an
Australian corporation and wholly-owned subsidiary of VP, and Kestrel
Energy California, Inc. ("KEC"), a Colorado corporation and wholly-owned
subsidiary of Kestrel Energy, Inc. ("Kestrel"), a Colorado corporation.
RECITALS
--------
A. The respective Boards of Directors of VP, VIP, VP/USA, KEC and
Kestrel deem it advisable and generally in the best interests and to the
advantage of each corporation, and their respective shareholders, that VP
acquire KEC by the merger of KEC into VP/USA under the terms and
conditions hereinafter set forth, in a transaction intended to qualify as
a tax-free reorganization under Section 368(a)(2)(E) of the Internal
Revenue Code of 1986, as amended (the "Code").
B. VIP is a flow through entity for U. S. federal income tax
purposes as a result of having filed Form 8832, Entity Classification
Election with the U. S. Internal Revenue Service, and for purposes of this
Agreement, is disregarded and not a party to this transaction.
C. The parties acknowledge that the Boards of Directors of VP,
VP/USA, KEC and Kestrel have common members who serve on each Board and in
order to avoid conflicts of interests between the parties, a committee of
independent directors from each corporation negotiated the terms of this
transaction with the assistance of independent consultants.
D. The Boards of Directors of VP, VP/USA and KEC expect that this
transaction will further certain of their business objectives and have
adopted resolutions authorizing the transactions contemplated by this
Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements, representations, warranties and covenants contained herein,
the parties hereto, intending to be legally bound, hereby agree as
follows:
SECTION 1. THE MERGER
----------------------
1.1 ACTIONS TO BE TAKEN. Subject to the terms and conditions of
this Agreement, including the fulfillment (or waiver) of all conditions to
the obligations of the parties contained herein, at the Effective Time (as
hereinafter defined) and pursuant to the laws of the State of Colorado,
the following shall occur:
(a) KEC shall be merged with and into VP/USA (such transaction
hereafter referred to as the "Merger"), and KEC shall be the surviving
corporation (the "Surviving Corporation"). The separate existence and
corporate organization of VP/USA shall cease upon filing of the Articles
of Merger with the Colorado Secretary of State, and thereupon KEC and
VP/USA shall be a single corporation and will continue to be governed by
the laws of the State of Colorado.
(b) The Articles of Incorporation of KEC attached as Exhibit
1.1(b) hereto shall constitute the articles of incorporation of the
Surviving Corporation.
(c) The Bylaws of KEC in the form attached as Exhibit 1.1(c)
shall constitute the bylaws of the Surviving Corporation.
(d) The officers of KEC shall resign as of the Effective Time
and the persons set forth on Schedule 1.1(d) shall be the officers of the
Surviving Corporation until their successors shall have been elected and
qualified.
(e) As soon as practicable following fulfillment or waiver of
the conditions specified in Sections 7 and 8 hereof, and provided that
this Agreement has not been terminated or abandoned pursuant to Section
11, the parties will cause the Agreement and Plan of Merger ("Merger
Agreement") to be filed with the office of the Secretary of State of the
State of Colorado. Subject to and in accordance with the laws of the
State of Colorado, the Merger will become effective at the date and time
the Articles of Merger are filed with the office of the Secretary of State
of the State of Colorado or such later time or date as may be specified in
the Articles of Merger (the "Effective Time"). Each of the parties will
use its best efforts to cause the Merger to be consummated as soon as
practicable following the fulfillment or waiver of the conditions
specified in Sections 7 and 8 hereof.
1.2 CONVERSION OF KEC SECURITIES. The mode of carrying the merger
into effect and the manner and basis of converting the shares of KEC into
shares of VP are as follows:
(a) For and in consideration of the exchange of all shares of
KEC Common Stock, no par value per share, issued and outstanding on the
Effective Date:
(1) VP will issue and deliver to VP/USA 66,750,000 shares
of Common Stock to be transferred to Kestrel, as sole shareholder of all
issued and outstanding KEC Common Stock, in exchange for 1,000 shares of
KEC Common Stock issued and outstanding at the Effective Time.
(2) The fair market value of the VP Common Stock received
by Kestrel will be approximately equal to the fair market value of the
KEC Common Stock surrendered in the exchange.
(b) Each certificate evidencing ownership of shares of VP
Common Stock issued and outstanding on the Effective Date shall continue
to evidence ownership of the same number of shares of VP Common Stock as
before the Effective Date.
1.3 EXCHANGE OF CERTIFICATES. Kestrel, as holder of all outstanding
certificate(s) representing shares of KEC Common Stock shall surrender the
same to VP, and shall receive in exchange a certificate or certificates
representing 66,750,000 shares of VP Common Stock into which the shares of
KEC Common Stock represented by the certificate(s) so surrendered shall
have been converted.
1.4 LEGEND ON VP CERTIFICATES ISSUED IN CONVERSION OF THE KEC COMMON
STOCK. Except as set forth on Schedule 1.4, the certificate(s)
representing shares of VP Common Stock issued in conversion of the KEC
Common Stock shall bear no restrictions or limitations on the resale or
trading thereof, except those that may be imposed by the Australian Stock
Exchange, notwithstanding VP's best efforts to persuade the Australian
Stock Exchange not to impose any such restrictions.
1.5 FILING OF ARTICLES OF MERGER. As soon as practicable after the
Effective Date, VP/USA and KEC shall, in accordance with Section 1.1(e),
cause the Articles of Merger to be filed with the Secretary of State of
the State of Colorado. KEC, Kestrel, VP/USA and VP will take such other
and further actions as may be required by the applicable laws of Colorado
in connection with such filing and in order to complete the Merger.
SECTION 2. REPRESENTATIONS AND WARRANTIES OF KESTREL AND KEC
-------------------------------------------------------------
Kestrel and KEC represent and warrant that:
2.1 CORPORATE ORGANIZATION AND GOOD STANDING. Kestrel and KEC, a
subsidiary of Kestrel, are corporations duly organized, validly existing
and in good standing under the laws of the State of Colorado and each has
all requisite corporate power and authority to own, operate and lease its
properties and to conduct its business as it is now being conducted.
Kestrel and KEC are duly qualified or licensed as a foreign corporation in
each other jurisdiction where each owns or leases substantial properties,
except where the failure to be so qualified or licensed would not have a
material adverse effect on the financial condition, properties or
businesses of Kestrel or KEC taken as a whole. Kestrel and KEC have each
delivered to VP a true and complete copy of their Articles of
Incorporation and Bylaws.
2.2 CAPITALIZATION. The authorized capital stock of KEC consists of
10,000 shares of Common Stock, no par value per share ("KEC Common
Stock"). As of the date of this Agreement, there are 1,000 shares of KEC
Common Stock issued and outstanding. All of the outstanding shares of KEC
Common Stock have been validly issued and are fully paid and nonassessable
and owned by Kestrel. Except as set forth above, KEC does not have any
shares of its capital stock issued or outstanding. There are no options,
warrants or rights outstanding to purchase shares of KEC Common Stock.
2.3 OBLIGATION TO ISSUE ADDITIONAL SECURITIES. At the Effective
Date of this Merger, KEC will not have outstanding any warrants, options,
convertible securities, or any other type of right pursuant to which any
person could acquire stock in KEC that, if exercised or converted, would
affect VP's acquisition or retention of control of KEC, as defined in
Section 368(c)(1) of the Internal Revenue Code. Furthermore KEC has no
plan or intention to issue additional shares of its common stock which
would result in VP losing control of KEC.
2.4 AUTHORIZATION, EXECUTION AND DELIVERY. Kestrel and KEC each has
the corporate power to enter into this Agreement and to carry out its
obligations hereunder. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by the Boards of Directors of Kestrel and KEC, and its sole
shareholder, and no other corporate proceedings on the part of Kestrel or
KEC is necessary to authorize this Agreement and the transactions
contemplated hereby. Neither Kestrel nor KEC are not subject to or
obligated under any charter, bylaw or contract provision or any note,
mortgage, lease, agreement, bond, indenture, instrument, license,
franchise or permit, or subject to any order, judgment, injunction, writ
or decree, which would be breached or violated by the execution or
consummation of this Agreement. Other than in connection with or in
compliance with the provisions and requirements of the laws of the State
of Colorado, the Securities Act of 1933, and the securities or blue sky
laws of the various states, no authorization, consent or approval of, or
filing with, any public body or authority is necessary for the completion
by Kestrel or KEC of the transactions contemplated by this Agreement,
except for such authorizations, consents, approvals or filings, the
failure to obtain or make which would not have a material adverse effect
on KEC's business.
2.5 FINANCIAL INFORMATION. KEC has previously delivered to VP
accurate and complete financial information concerning its properties,
operations and prospects. Except to the extent reflected in or reserved
against in KEC's balance sheet as of December 31, 1999, KEC did not have
at that date any liabilities or obligations (secured, unsecured,
contingent or otherwise) of a nature customarily reflected in a corporate
balance sheet prepared in accordance with generally accepted accounting
principles ("Liabilities"). All Liabilities incurred subsequent to
December 31, 1999 are set forth in Schedule 2.5 hereto. On the Effective
Date, the fair market value of the assets of KEC will exceed the sum of
its liabilities, plus the amount of liabilities, if any, to which the
assets are subject.
2.6 ABSENCE OF CERTAIN CHANGES. Except as disclosed on Schedule
2.6, there has been no material adverse change in the business, properties
or financial condition of KEC since December 31, 1999.
2.7 LITIGATION, ETC. Except as disclosed on Schedule 2.7, there is
no litigation, proceeding or investigation pending or, to the knowledge of
KEC, threatened against KEC which if successful might result in a material
adverse change in the business, properties or financial condition of KEC
or which questions the validity or legality of this Agreement or of any
action taken or to be taken by KEC in connection with this Agreement.
Neither Kestrel nor KEC are under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section 368(a) of the Internal
Revenue Code.
2.8 CONTRACTS. Except as disclosed on Schedule 2.8, KEC is not a
party to any material contract not in the ordinary course of business
which is to be performed in whole or in part at or after the date of this
Agreement.
2.9 TITLE. KEC has good and marketable title to all property
included in the balance sheet of KEC as of December 31, 1999 other than
property disposed of in the ordinary course of business after said date.
Except as disclosed on Schedule 2.8, the properties of KEC as previously
disclosed in writing to VP and VP/USA, including its rights to all
drilling interests, are not subject to any mortgage, encumbrance or lien
of any kind except minor encumbrances which do not materially interfere
with the use of the property in the conduct of the business of KEC.
2.10 TAX RETURNS. KEC has timely filed all required federal, state
and local tax returns and has no outstanding tax liabilities, including
but not limited to income, withholding, property and corporate franchise
taxes.
2.11 NO VIOLATION. Consummation of the merger will not constitute or
result in a breach or default under any provision of any charter, bylaw,
indenture, mortgage, lease or agreement, or any order, judgment, decree,
law or regulation to which any property of KEC is subject or by which is
bound, except for breaches or defaults which in the aggregate would not
have a materially adverse effect on KEC's properties, business operations
or financial condition.
2.12 BOOKS AND RECORDS. The corporate minute books, stock
certificate books, stock registers and other corporate records of KEC are
correct and complete in all material respects, and the signatures
appearing on all documents contained therein are the true signatures of
the persons purporting to have signed the same.
2.13 DISCLOSURE. Neither this Agreement nor any Schedule, Exhibit or
certificate delivered in accordance with the terms hereof, or any document
or statement in writing which has been supplied by or on behalf of KEC or
by any of KEC's directors or officers, in connection with the transactions
contemplated hereby, contains any untrue statement of a material fact, or
omits any statement of a material fact necessary in order to make the
statements contained herein or therein not misleading. There is no fact
or circumstance known to KEC which materially and adversely affects or
which may materially and adversely affect its business, prospects or
financial condition or its assets, which has not been set forth in this
Agreement, the Schedules, Exhibits, certificates or statements furnished
in writing to VP in connection with the transactions contemplated by this
Agreement.
2.14 BROKER'S OR FINDER'S FEES. No broker, finder or similar
intermediary is entitled to fees in connection with the transactions
contemplated by this Agreement by virtue of any action or agreement of
KEC.
2.15 VP COMMON STOCK RECEIVED IN EXCHANGE. To the best knowledge of
the management of KEC and Kestrel, there is no plan or intention by
Kestrel to sell, exchange or otherwise dispose of shares of VP Common
Stock received in the Merger that would reduce Kestrel's ownership of VP
Common Stock to a number of shares having a value, as of the Effective
Date, of less than 50 percent of the value of all of the formerly
outstanding stock of KEC as of the Effective Date.
2.16 DUE DILIGENCE. KEC has completed its due diligence review of
VP.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF VP AND VP/USA
-----------------------------------------------------------
VP and VP/USA represent and warrant that:
3.1 CORPORATE ORGANIZATION. VP and VP/USA, a subsidiary of VP, are
corporations duly organized, validly existing and in good standing under
the laws of their respective jurisdictions of incorporation and each has
all requisite corporate power and authority to own, operate and lease its
properties and to conduct its business as it is now being conducted. VP
and VP/USA are duly qualified or licensed as a foreign corporation in each
other jurisdiction where each owns or leases substantial properties,
except where the failure to be so qualified or licensed would not have a
material adverse effect on the financial condition, properties or
businesses of VP or VP/USA taken as a whole. VP and VP/USA have each
delivered to KEC a true and complete copy of their Articles of
Incorporation and Bylaws.
3.2 CAPITALIZATION.
(a) VP has 424,253,866 shares of no par value Common Stock
issued and outstanding, fully paid and nonassessable.
(b) Except as set forth above, VP does not have any shares of
its capital stock issued or outstanding. Except as set forth on Schedule
3.2 hereof, VP does not have any outstanding subscriptions, options,
warrants, rights or other agreements or commitments obligating VP to issue
shares of its capital stock.
(c) The authorized capital stock of VP/USA consists of 4,000
shares of Common Stock, $250.00 par value per share, of which 4,000 shares
are issued and outstanding, all of which are owned of record and
beneficially by VP.
(d) To the best knowledge of VP management, VP's outstanding
securities have been issued in compliance with all applicable United
States and Australian securities laws.
3.3 AUTHORIZATION, EXECUTION AND DELIVERY. VP and VP/USA each has
the corporate power to enter into this Agreement and to carry out its
obligations hereunder. The execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby has been duly
authorized and approved by the Boards of Directors of VP and VP/USA's and
by VP as the sole shareholder of VP/USA. No other corporate proceedings
on the part of VP or VP/USA are necessary to authorize this Agreement and
the transactions contemplated hereby.
3.4 FINANCIAL INFORMATION. VP has previously furnished to KEC and
Kestrel accurate and complete financial information concerning its
properties, operations and prospects, as well as copies of all publicly
available information filed by VP with any government entity in connection
with its publicly traded securities. Except to the extent reflected or
reserved against in VP's balance sheet as of December 31, 1999, VP did not
have at that date any liabilities or obligations (secured, unsecured,
contingent or otherwise) of a nature customarily reflected in a corporate
balance sheet prepared in accordance with generally accepted accounting
principles ("Liabilities").
3.5 ABSENCE OF CERTAIN CHANGES. Except as disclosed on Schedule
3.5, There has been no material adverse change in the business, properties
or financial condition of VP since December 31, 1999.
3.6 LITIGATION. Except as disclosed on Schedule 3.6, there is no
litigation, proceeding or investigation pending or, to the knowledge of
VP, threatened against VP or VP/USA which if successful might result in a
material adverse change in the business, properties or financial condition
of VP or VP/USA or which questions the validity or legality of this
Agreement or of any action taken or to be taken by VP in connection with
this Agreement.
3.7 CONTRACTS. Except as disclosed on Schedule 3.7, VP is not a
party to any material contract not in the ordinary course of business
which is to be performed in whole or in part at or after the date of this
Agreement.
3.8 TITLE. VP has good and valid title to all property included in
the balance sheets of VP as of December 31, 1999, other than property
disposed of in the ordinary course of business after said date. Except
as disclosed on Schedule 3.8, the properties of VP are not subject to any
mortgage, encumbrance or lien of any kind.
3.9 TAX RETURNS. VP has timely filed all required federal, state
and local tax returns and has no outstanding tax liabilities, including
but not limited to income, withholding, property and corporate franchise
taxes.
3.10 NO VIOLATION. Consummation of the merger will not constitute or
result in a breach or default under any provision of any charter, bylaw,
indenture, mortgage, lease or agreement, or any order, judgment, decree,
law or regulation to which any property of VP is subject or by which VP is
bound, except for breaches or defaults which in the aggregate would not
have a materially adverse effect on VP's properties, business operations
or financial condition.
3.11 BOOKS AND RECORDS. The corporate minute books, stock
certificate books, stock registers and other corporate records of VP are
correct and complete in all material respects, and the signatures
appearing on all documents contained therein are the true signatures of
the persons purporting to have signed the same.
3.12 DISCLOSURE. Neither this Agreement nor any Schedule, Exhibit or
certificate delivered in accordance with the terms hereof, or any document
or statement in writing which has been supplied by or on behalf of VP or
by any of VP's directors or officers, in connection with the transactions
contemplated hereby, contains any untrue statement of a material fact, or
omits any statement of a material fact necessary in order to make the
statements contained herein or therein not misleading. There is no fact
or circumstance known to VP which materially and adversely affects or
which may materially and adversely affect its business, prospects or
financial condition or its assets, which has not been set forth in this
Agreement, the Schedules, Exhibits, certificates or statements furnished
in writing to KEC in connection with the transactions contemplated by this
Agreement.
3.13 BROKER'S OR FINDER'S FEES. No broker, finder or similar
intermediary is entitled to fees in connection with the transactions
contemplated by this Agreement by virtue of any action or agreement of VP
or VP/USA.
3.14 CONTINUITY OF BUSINESS ENTERPRISE. VP will continue at least
one significant historic business line of KEC, or use at least a
significant portion of KEC's historic business assets in a business, in
each case within the meaning of Treasury Reg. 1.368-1(d).
3.15 OWNERSHIP OF KEC COMMON STOCK BY VP. VP does not own, nor has
it owned during the past five years, any share of KEC Common Stock.
Subsequent to the Merger, VP does not intend to dispose the KEC Common
Stock received or of substantially all of KEC's assets for at least five
(5) years from the Effective Date.
3.16 KEC COMMON STOCK AND ASSETS. Neither VP/USA nor VP has a plan
or intention to: liquidate KEC; merge KEC into another corporation; cause
KEC to sell or dispose of the KEC Common Stock except for dispositions to
corporations controlled by VP; or cause KEC to sell or otherwise dispose
of any of its assets except for dispositions made in the ordinary course
of business or transfer of assets to a corporation controlled by KEC.
3.17 KEC OWNERSHIP INTERESTS FOLLOWING THE MERGER. Immediately
following the Effective Date, VP represents that KEC will continue to hold
at least 90 percent of the fair market value of its net assets held
immediately prior to the transaction, at least 70 percent of the fair
market value of its gross assets held immediately prior to the
transaction, and at least 90 percent of the fair market value of VP/USA's
net assets and at least 70 percent of the fair market value of VP/USA's
gross assets held immediately prior to the transaction. For purposes of
this representation, amounts by KEC or VP/USA to shareholders who receive
cash or other property, amounts used by KEC or VP/USA to pay
reorganization expenses, and all redemptions and distributions (except for
regular, normal dividends) made by KEC will be included as assets of KEC
or VP/USA, respectively, immediately prior to the Effective Date.
3.18 INTENTION TO REACQUIRE VP COMMON STOCK BY VP. VP has no plan or
intention to reacquire from Kestrel any of the VP Common Stock issued in
the transactions contemplated herein.
3.19 BUSINESS ACTIVITY OF VP. VP has conducted an active trade or
business outside of the United States for the entire 36 month period
immediately prior to the Effective Date, and has no intention to
substantially dispose of or discontinue such trade or business.
3.20 REPORTING REQUIREMENTS. VP and its foreign shareholders will
cooperate and comply with any United States reporting requirements that
may be required as a result of this Agreement by having KEC file all
disclosures as required by U.S. Treasury Regulation 1.367(a)-3(c)(1)
and (6).
SECTION 4. CONDUCT OF KEC PENDING THE EFFECTIVE DATE
-----------------------------------------------------
KEC covenants that between the date of this Agreement and the
Effective Date:
4.1 REGULAR COURSE OF BUSINESS. Except as otherwise consented to
in writing by VP, prior to the Effective Time, KEC will carry on its
business in the ordinary course only, and, without limiting the generality
of the foregoing, KEC will use its best efforts to preserve its present
business organization intact, keep available the services of its present
officers and employees, and preserve its present relationships with
persons having business dealings with it.
4.2 RESTRICTED ACTIVITIES AND TRANSACTIONS. Except as otherwise
consented to in writing by VP, or contemplated by this Agreement, prior to
the Effective Date, KEC will not:
(a) amend its certificate or Articles of Incorporation or
Bylaws;
(b) issue, sell or deliver, or agree to issue, sell or deliver,
any shares of any class of capital stock or any securities convertible
into any such shares or convertible into securities in turn so
convertible, or any options, warrants or other rights calling for the
issuance, sale or delivery of any such shares or convertible securities,
declare or pay any dividend or make any distribution on its capital stock
in cash, stock or property, subdivide shares of capital stock into a
greater number of shares, or redeem, repurchase or otherwise acquire any
shares of capital stock;
(c) discharge or satisfy or pay any lien, encumbrance, debt or
obligation other than in the ordinary course of business;
(d) sell, transfer or otherwise dispose of any of its assets
otherwise than in the normal course of business;
(e) incur or assume or authorize or commit to any
expenditure(s) in excess of $25,000 in the aggregate other than in the
ordinary course of business;
(f) assume or guarantee, or agree to assume or guarantee, any
debt, liability or other obligation of any person, firm or corporation; or
(g) acquire control of any other corporation, association,
joint venture, partnership, business trust or other business entity, or
acquire control or ownership of all or a substantial portion of the assets
of any of the foregoing or merge, consolidate or otherwise combine with
any other corporation (except as provided for in this Agreement), or enter
into any agreement providing for any of the foregoing.
4.3 ADVICE OF CHANGES. Until the Effective Date, KEC will promptly
advise VP in writing after acquiring knowledge thereof, of (i) any event
occurring subsequent to the date of this Agreement which would render any
representation or warranty of KEC contained in this Agreement, if made on
or as of the date of such event or the Effective Time, untrue or
inaccurate in any material respect; and, (ii) any material adverse change
in KEC's business.
4.4 ACCESS TO RECORDS AND PROPERTIES. VP may, prior to the
Effective Date, through its employees, agents and representatives, make or
cause to be made a detailed review of the business and financial condition
of KEC, and make or cause to be made such investigation as it deems
necessary or advisable of the properties, assets, businesses, books and
records of KEC. KEC agrees to furnish such assistance as VP reasonably may
request in conducting such review and investigation and will provide, and
will cause its independent public accountants to provide, VP and its
employees, agents and representatives full access to all books, records
(including tax returns filed or in preparation), personnel and premises of
KEC and the work papers and other records of its independent public
accountants and shall provide to VP such other information concerning the
business of KEC as VP reasonably may request. Any such review described
in this section shall be undertaken during normal business hours following
reasonable notice to KEC.
4.5 GUARANTEE OF KEC'S OBLIGATIONS. Kestrel shall cause KEC to
perform in a timely manner all of its obligations, and to comply with all
its agreements, in this Agreement and in the Articles of Merger.
SECTION 5. CONDUCT OF VP AND VP/USA PENDING THE EFFECTIVE DATE
---------------------------------------------------------------
VP and VP/USA covenant that between the date of this Agreement and
the Effective Date:
5.1 REGULAR COURSE OF BUSINESS. Except as otherwise consented to
in writing by KEC, prior to the Effective Time, VP and VP/USA will carry
on its respective businesses in the ordinary course only, and, without
limiting the generality of the foregoing, VP will use its best efforts to
preserve its present business organization intact, keep available the
services of its present officers and employees, and preserve its present
relationships persons having business dealings with it.
5.2 RESTRICTED ACTIVITIES AND TRANSACTIONS. Except as otherwise
consented to in writing by Kestrel and KEC, or contemplated by this
Agreement, prior to the Effective Date, neither VP nor VP/USA will:
(a) amend its certificate or articles of incorporation or
bylaws;
(b) issue, sell or deliver, or agree to issue, sell or deliver,
any shares of any class of capital stock or any securities convertible
into any such shares or convertible into securities in turn so
convertible, or any options, warrants or other rights calling for the
issuance, sale or delivery of any such shares or convertible securities,
declare or pay any dividend or make any distribution on its capital stock
in cash, stock or property, subdivide shares of capital stock into a
greater number of shares, or redeem, repurchase or otherwise acquire any
shares of capital stock;
(c) discharge or satisfy or pay any lien, encumbrance, debt or
obligation other than in the ordinary course of business;
(d) sell, transfer or otherwise dispose of any of its assets
otherwise than in the normal course of business;
(e) incur or assume or authorize or commit to any
expenditure(s) in excess of $25,000 in the aggregate other than in the
ordinary course of business;
(f) assume or guarantee, or agree to assume or guarantee, any
debt, liability or other obligation of any person, firm or corporation; or
(g) acquire control of any other corporation, association,
joint venture, partnership, business trust or other business entity, or
acquire control or ownership of all or a substantial portion of the assets
of any of the foregoing or merge, consolidate or otherwise combine with
any other corporation (except as provided for in this Agreement), or enter
into any agreement providing for any of the foregoing.
5.3 ADVICE OF CHANGES. VP will promptly advise Kestrel and KEC in
writing after acquiring knowledge thereof, of (i) any event occurring
subsequent to the date of this Agreement which would render any
representation or warranty of VP contained in this Agreement, if made on
or as of the date of such event or at the Effective Time, untrue or
inaccurate in any material respect; and, (ii) any material adverse change
in the business of VP and/or its VP/USA.
5.4 ACCESS TO RECORDS AND PROPERTIES. Kestrel and KEC may, prior to
the Effective Date, through its employees, agents and representatives,
make or cause to be made a detailed review of the business and financial
condition of VP, and make or cause to be made such investigation as it
deems necessary or advisable of the properties, assets, businesses, books
and records of VP. VP agrees to furnish such assistance as Kestrel or KEC
reasonably may request in conducting such review and investigation and
will provide, and will cause its independent public accountants to
provide, Kestrel and/or KEC and its respective employees, agents and
representatives full access to all books, records (including tax returns
filed or in preparation), personnel and premises of VP and the work papers
and other records of its independent public accountants and shall provide
to Kestrel and KEC such other information concerning the business of VP as
Kestrel and KEC reasonably may request. Any such review described in this
section shall be undertaken during normal business hours following
reasonable notice to VP.
5.5 GUARANTEE OF VP/USA OBLIGATIONS. VP shall cause VP/USA to
perform in a timely manner all its obligations, and to comply with all its
agreements, in this Agreement and in the Articles of Merger.
SECTION 6. MUTUAL COVENANTS
----------------------------
6.1 CONFIDENTIALITY. VP, VP/USA, KEC and Kestrel will use their
best efforts to keep confidential any and all information furnished to one
of them by the other or such other's representatives or independent public
accountants in connection with the transactions contemplated by this
Agreement, and the business and financial review and investigation
referred to in Section 4.4 and Section 5.4, except to the extent any such
information may be generally available to the public, and VP, VP/USA, KEC
and Kestrel have instructed their respective officers, employees and other
representatives having access to such information to comply with the
obligation of confidentiality. In the event of termination of this
Agreement, each of VP, VP/USA, KEC and Kestrel will promptly deliver to
the other all originals and copies of documents, work papers and other
material containing information concerning the other that was obtained
from the other or its agents, employees or representatives in connection
with such transactions or business and financial review and investigation,
whether so obtained before or after the execution hereof, will not use any
information so obtained, will not disclose or divulge such information to
any other person and will keep confidential any information so obtained;
provided, however, that (after reasonable measures have been taken to
maintain confidentiality and after giving reasonable notice to the other
parties to this Agreement specifying the information involved and the
manner and extent of the proposed use of disclosure thereof) (i) any
disclosure of such information may be made by a party hereto to the extent
required by applicable law or regulation or judicial or regulatory process
and (ii) such information may be used by such party as evidence in or in
connection with any pending or threatened litigation relating to this
Agreement or any transaction contemplated hereby. The obligations arising
under this Section 6.1 shall survive any termination or abandonment of
this Agreement.
6.2 INTERCORPORATE DEBT. There is no intercorporate indebtedness
existing between VP and KEC, or between VP/USA and KEC that was issued,
acquired, or will be settled at a discount.
6.3 INVESTMENT COMPANY STATUS. No two parties to the transaction
are investment companies as defined in Section 368(a)(2)(f)(iii) and (iv)
of the Internal Revenue Code.
6.4 EXPENSES. Whether or not the Merger is consummated, legal,
accounting and other fees, costs and expenses to be incurred by each party
regarding this Agreement and the transactions contemplated hereby shall be
paid by the party incurring them. Notwithstanding any other provision in
this Agreement, in the event of any dispute or controversy, in addition to
any other remedies the prevailing party may obtain in such dispute, the
prevailing party in such dispute shall be entitled to recover from the
other party all of its reasonable legal fees and out-of-pocket costs
incurred by such party in enforcing or defending its rights hereunder.
6.5 FAIR MARKET VALUE OF VP AND KEC. The parties agree that as of
the Effective Date, the fair market value of VP is greater or equal to the
fair market value of KEC.
6.6 FURTHER ASSURANCES. Each party hereto agrees to execute and
deliver such instruments and take such other actions as any other party
may reasonably require in order to carry out the intent of this Agreement.
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATION OF KEC
-----------------------------------------------------
KEC's obligation to consummate this Merger shall be subject to
fulfillment on or before the Effective Date of each of the following
conditions, unless waived in writing by KEC:
7.1 VP AND VP/USA REPRESENTATIONS AND WARRANTIES. The
representations and warranties of VP and VP/USA set forth in Section 3
hereof shall be true and correct at the Effective Date as though made at
and as of that date, except as affected by transactions contemplated
hereby.
7.2 VP AND VP/USA COVENANTS. VP and VP/USA shall have performed all
covenants required by this Agreement to be performed by it on or before
the Effective Date.
7.3 GUARANTEE OF VP/USA OBLIGATIONS. VP shall cause VP/USA to
perform in a timely manner all of its obligations, and to comply with all
its agreements, in this Agreement.
7.4 OPINION OF VP'S COUNSEL. KEC may require VP to deliver to KEC
an opinion of its counsel dated the Effective Date, in form and substance
satisfactory to counsel for KEC, to the effect that:
(a) VP and VP/USA are corporations duly organized, validly
existing and in good standing, and are duly qualified to do business as a
foreign corporation in each jurisdiction (if any) in which, to the best
knowledge of counsel, its property or business requires such
qualification.
(b) The authorized capital stock of VP and VP/USA are as set
forth in Section 3.2 hereof.
(c) The execution and consummation of this Agreement have been
duly authorized and approved by VP's Board of Directors, VP/USA's Board of
Directors and its sole shareholder, and consummation of this Agreement
will not constitute or result in any breach or default of the character
described in Section 3.10 hereof of which counsel has knowledge.
(d) Counsel has no knowledge of any liabilities or obligations
of the type described in Section 3.4 hereof, any litigation, proceeding,
or investigation of the type described in Section 3.6 hereof, or any
defects in title or mortgages, encumbrances or liens of the type described
in Section 3.8 hereof.
(e) The shares of VP Common Stock into which KEC Common Stock
is to be converted pursuant to this Agreement will, upon such conversion,
be duly and validly authorized and issued in compliance with all
applicable foreign, federal and state securities laws, and will be fully
paid and nonassessable, and shall not be restricted or limited as to
resale or trading except as may be required by the Australian Stock
Exchange, which restrictions or limitations shall have been diligently
opposed by VP.
7.5 ACCOUNTANT'S LETTER. KEC may require that VP furnish a letter
from its certified public accountants, dated the Effective Date, in form
and substance satisfactory to KEC, stating that on the basis of
consultation with officers of VP, a limited review (but not an audit) of
VP's accounting records, and other specified procedures and inquiries,
which KEC may request in writing, that nothing has come to their attention
which indicates that there has been any material adverse change in the
financial condition of VP during the period from December 31, 1999 to a
specified date not more than five days prior to the Effective Date.
SECTION 8. CONDITIONS PRECEDENT TO OBLIGATION OF VP
----------------------------------------------------
VP's obligation to consummate this merger shall be subject to
fulfillment on or before the Effective Date of each of the following
conditions, unless waived in writing by VP:
8.1 KEC'S REPRESENTATIONS AND WARRANTIES. The representations and
warranties of KEC set forth in Section 2 hereof shall be true and correct
at the Effective Date as though made at and as of that date, except as
affected by transactions contemplated hereby.
8.2 KEC'S COVENANTS. KEC shall have performed all covenants
required by this Agreement to be performed by it on or before the
Effective Date.
8.3 GUARANTEE OF KEC OBLIGATIONS. Kestrel shall cause KEC to
perform in a timely manner all of its obligations, and to comply with all
its agreements, in this Agreement.
8.4 OPINION OF KEC'S COUNSEL. VP may require KEC to deliver to VP
an opinion of its counsel, dated the Effective Date, in form and substance
satisfactory to counsel for VP, to the effect that:
(a) KEC is a corporation duly organized, validly existing and
in good standing, and is duly qualified to do business as a foreign
corporation in each jurisdiction (if any) in which, to the best knowledge
of counsel, its property or business requires such qualification.
(b) KEC's authorized capital stock is as set forth in Section
2.2 hereof.
(c) The execution and consummation of this Agreement have been
duly authorized and approved by Kestrel's Board of Directors, KEC's Board
of Directors and its sole shareholder, and consummation of this Agreement
will not constitute or result in any breach or default of the character
described in Section 2.11 hereof of which counsel has knowledge.
(d) Counsel has no knowledge of any liabilities or obligations
of the type described in Section 2.5 hereof, any litigation, proceeding,
or investigation of the type described in Section 2.7 hereof, or any
defects in title or mortgages, encumbrances or liens of the type described
in Section 2.9 hereof.
(e) The shares of KEC Common Stock have been duly and validly
authorized and issued, and are fully paid and nonassessable.
8.5 ACCOUNTANT'S LETTER. VP may require KEC to deliver a letter
from its certified public accountants, dated the Effective Date, in form
and substance satisfactory to VP, stating that on the basis of
consultation with officers of KEC, a limited review (but not an audit) of
KEC's accounting records, and other specified procedures and inquiries,
which VP may request in writing, that nothing has come to their attention
which indicates that there has been any material adverse change in the
financial condition of KEC during the period from inception to a specified
date not more than five days prior to the Effective Date.
8.6 DUE DILIGENCE. VP shall have completed a due diligence review
of all books, records and business and financial affairs of KEC reasonably
satisfactory to it.
SECTION 9. NOTICE OF EVENTS
----------------------------
Each party shall promptly notify each other party of (a) any event,
condition or circumstance occurring from the date hereof through the
Effective Date that would constitute a violation or breach of this
Agreement, or (b) any event, occurrence, transaction or other item which
would have been required to have been disclosed on any Schedule, Exhibit
or statement delivered hereunder, had such event, occurrence, transaction
or item existed on the date hereof, other than items arising in the
ordinary course of business which would not render a change in any of the
representations, warranties or other agreements of said party.
SECTION 10. TERMINATION
------------------------
10.1 CIRCUMSTANCES OF TERMINATION. This Agreement may be terminated
(notwithstanding approval by the shareholders of KEC hereto):
(a) By the mutual consent in writing of the Boards of Directors
of KEC and VP.
(b) By the Board of Directors of KEC if any condition provided
in Section 7 hereof has not been satisfied or waived on or before the
Effective Date.
(c) By the Board of Directors of VP if any condition provided
in Section 8 hereof has not been satisfied or waived on or before the
Effective Date.
(d) By the Board of Directors of VP if the Closing has not
occurred by July 15, 2000, subject to an extension of up to 10 days which
may be exercised by VP upon written notice to KEC.
10.2 EFFECT OF TERMINATION. In the event of a termination of this
Agreement pursuant to Section 10.1(a) hereof, each party shall pay the
costs and expenses incurred by it in connection with this Agreement and no
party (or any of its officers, directors and shareholders) shall be liable
to any other party for any costs, expenses, damage or loss of anticipated
profits hereunder.
In the event of a termination of this Agreement pursuant to
Sections 10.1(b), (c) and (d) hereof, the party at fault shall be liable
to the other party for all reasonable costs and expenses.
SECTION 11. GENERAL PROVISIONS
-------------------------------
11.1 FURTHER ASSURANCES. At any time, and from time to time, after
the Effective Date, each party will execute such additional instruments
and take such action as may be reasonably requested by the other party to
confirm or perfect title to any property transferred hereunder or
otherwise to carry out the intent and purposes of this Agreement.
11.2 WAIVER. Any failure on the part of either party hereto to
comply with any of its obligations, agreements or conditions hereunder may
be waived in writing by the party to whom such compliance is owed.
11.3 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties and supersedes and cancels any other
agreement, representation, or communication, whether oral or written,
between the parties hereto relating to the transactions contemplated
herein or the subject matter hereof.
11.4 HEADINGS. The section and subsection headings in this Agreement
are inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
11.5 GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of
Colorado, without regard to conflict of laws. This Agreement shall be
subject to the jurisdiction and venue of the state and federal courts
situated in Denver, Colorado.
11.6 ASSIGNMENT. This Agreement shall inure to the benefit of, and
be binding upon, the parties hereto and their successors and assigns;
provided, however, that any assignment by either party of its rights under
this Agreement without the written consent of the other party shall be
void.
11.7 COUNTERPARTS. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
SECTION 12. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS
-------------------------------------------------------------------
All of the representations and warranties of the parties contained in
this Agreement shall survive for a period of two years after the Effective
Date.
SECTION 13. INDEMNITY AGREEMENTS OF VP AND KEC
-----------------------------------------------
VP and KEC each shall indemnify, defend, reimburse and hold harmless
the other from and against any and all Losses resulting from:
(a) Any inaccuracy in, or breach of, any representation and
warranty or nonfulfillment of any covenant on the part of VP or KEC,
respectively, contained in this Agreement.
(b) Any misrepresentation in or omission from or nonfulfillment
of any covenant on the part of VP or KEC, respectively, contained in any
other agreement, certificate or other instrument furnished or to be
furnished to the other party by that party pursuant to this Agreement.
SECTION 14. OTHER AGREEMENTS
-----------------------------
14.1 PUBLIC DISCLOSURE. None of the parties hereto shall issue any
press release or otherwise make any public statement with respect to the
transactions contemplated hereby not required by law except upon the
written consent of the other party hereto. Such approval shall not be
unreasonably withheld.
14.2 NOTICES. All consents, waivers, notices and other
communications hereunder shall be in writing and shall be deemed to have
been duly given if delivered personally or sent by facsimile transmission
or by overnight courier to the parties at the following addresses or at
such other addresses as shall be specified by the parties by like notice:
(a) If to VP or VP/USA to:
Victoria Petroleum N.L.
Robert J. Pett, President
999 18th Street, Suite 2490
Denver, CO 80202
(303) 295-1939 (Telephone)
(303) 295-1862 (Fax)
(b) If to KEC to:
Kestrel Energy California, Inc.
21550 Oxnard Street, Suite 835
Woodland Hills, CA 91367
Attn: Timothy Hoops, President
(303) 295-1939 (Telephone)
(303) 295-1862 (Fax)
With a copy to:
S. Lee Terry, Esq.
Gorsuch Kirgis, LLP
Tower 1, Suite 1000
1515 Arapahoe Street
Denver, Colorado 80202
(303) 376-5000 (Telephone)
(303) 376-5001 (Fax)
Any party may change the address to which notices, requests, demands and
other communications hereunder are to be sent to such party by giving the
other parties hereto written notice thereof in accordance with this
Section 14.2.
14.3 BINDING EFFECT. This Agreement shall be binding upon and shall
inure to the benefit of the parties and their respective successors and
assigns; provided that this Agreement may not be assigned by any party
without the consent of the other parties.
14.4 ENTIRE AGREEMENT. This Agreement (including the Exhibits and
Schedules referred to herein) constitutes the entire agreement and
supersedes all other prior agreements and undertakings, both written and
oral, among the parties, or any of them, with respect to the subject
matter hereof.
14.5 SCHEDULES AND EXHIBITS. The Schedules and Exhibits referred to
in this Agreement shall be construed as an integral part of this Agreement
as if the same had been set forth herein and shall be satisfactory in form
and substance to each party hereto.
14.6 APPLICABLE LAW AND JURISDICTION. This Agreement shall be
governed in all respects, including validity, interpretation and effect,
by the laws of the State of Colorado without regard to conflict of law.
This Agreement shall be subject to the jurisdiction and venue of the state
and federal courts situated in Denver, Colorado.
14.7 NO BENEFIT TO THIRD PARTIES. No provision of this Agreement is
intended to confer any rights or remedies upon any person not a party of
this Agreement.
14.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original but all of which,
when taken together, shall constitute only one document. It shall not be
necessary in making proof of this Agreement to produce or account for more
than one such counterpart.
14.9 ACKNOWLEDGEMENTS. The parties represent and acknowledge that
each has been represented and advised by counsel in connection with this
Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the day and year first above written.
VICTORIA PETROLEUM N.L., an Australian
corporation ("VP")
By/s/Bernard Wrixon
Bernard Wrixon, Director
VICTORIA PETROLEUM USA, INC., a
Colorado corporation ("VP/USA")
By/s/Robert J. Pett
Robert J. Pett, President
KESTREL ENERGY CALIFORNIA, INC., a
Colorado corporation ("KEC")
By/s/Timothy L. Hoops
Timothy L. Hoops, President
KESTREL ENERGY, INC., a Colorado
corporation ("Kestrel")
By/s/Timothy L. Hoops
Timothy L. Hoops, President
Exhibit 1.1(b)
Articles of Incorporation for KEC
Exhibit 1.1(c)
Bylaws for KEC
Schedule 1.1(d)
Officers of Surviving Corporation
Robert J. Pett President and Treasurer
Timothy L. Hoops Vice President and Assistant Secretary
John T. Kopcheff Secretary
Schedule 1.4
Restrictive Legends
None
Schedule 2.5
Liabilities of KEC
None
Schedule 2.6
Material Changes to KEC
None
Schedule 2.7
Litigation Matters of KEC
None
Schedule 2.8
Contracts of KEC
None
Schedule 2.9
Mortgages, Encumbrances or Liens on KEC Properties
None
Schedule 3.2
List of VP Options
None
Schedule 3.5
Material Changes to VP and VP/USA
None
Schedule 3.6
Litigation Matters Pending for VP and VP/USA
None
Schedule 3.7
Contracts of VP and VP/USA
None
Schedule 3.8
Mortgages, Encumbrances or Liens on VP Properties
None
